In a new Briefing Note The Workplace ISA and the ISA Pension, published by the Centre for Policy Studies on Friday 3 July, Michael Johnson urges the Government to stop tinkering with pensions and instead undertake the full reforms that workers need.
Johnson argues that replacing current support for occupational pensions with a Workplace ISA would have the following benefits:
- A radical simplification of the UK savings landscape.
- Clearly in line with what people want from savings products.
- An opportunity to make a significant reduction in the deficit, perhaps by up to £10 billion.
Michael Johnson explains:
“Last year the Centre for Policy Studies published proposals to abolish all Income Tax and employer NICs relief on pension contributions, to be replaced by a redistributive 50p incentive per £1 saved, paid irrespective of tax-paying status.
In contrast, the Conservative Party’s 2015 manifesto proposed reducing tax relief on pension contributions for those earning more than £150,000 a year, reducing it from £40,000 to £10,000 by the time income reaches £210,000: mere tinkering and added complexity. More significantly, the envisaged saving is already ear-marked to fund proposed inheritance tax reforms, so it will do nothing to help the Chancellor meet his target of a balanced budget by 2019-20.
The manifesto was silent on the matter of the £14 billion of annual tax reliefs in respect of employer contributions. If the Chancellor were to look at this tempting sum, perhaps as soon as in the forthcoming Budget, the prospect of a Workplace ISA, operating within the auto-enrolment arena, becomes all the more attractive.
This could lead to an ISA Pension, a regular income stream derived from the liquidation of Workplace ISA assets. It would be tax-exempt, consistent with ISAs’ TEE tax framework.”